Bone Morphogenetic Proteins are key signaling molecules in vertebrate development. Little is known about Bmp gene regulation in any organ. In Drosophila, the Bmp gene, dpp is regulated by Dorsal, the invertebrate homologue of Rel-NF-kB. In this study we examined whether TNF-alpha, which activates NF-kB, can regulate Bmp4 gene expression. TNF-alpha reduced Bmp4 mRNA in lung adenocarcinoma A549 cells and repressed transcriptional activity of the human Bmp4 promoter in a dose-dependent manner. Similar repression was observed when the Bmp4 promoter was co-transfected with a p65 (RelA) expression vector in the absence of TNF-alpha treatment, suggesting that RelA mediates the effect of TNF-alpha. In support of this finding, the repressor effect of TNF-alpha on Bmp4 was abrogated by a co-transfected dominant negative mutant of IkB (S32A/S36A). The human Bmp4 promoter contains 3 putative consensus binding sites for NF-kB. Surprisingly, only one of the latter binding sites was capable of binding NF-kB. Repressor effect of NF-kB was not dependent on any of the three binding sites, but localized to a 122 bp fragment which bound both RelA and SP1. SP1 stimulated transcription, whereas increasing doses of RelA opposed this effect. In vivo, TNF-alpha inhibited branching morphogenesis and LacZ gene expression in Bmp4-lacz transgenic lungs. These data support a model in which TNF-alpha-induced RelA interacts with SP1 to bring about transcriptional repression of Bmp4 gene. These findings provide a mechanistic paradigm for interactions between mediators of inflammation and morphogenesis with relevant implications for normal lung development and pathogenesis of disease.